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It seems almost every shop and restaurant I visit now warns me that they are going to charge an extra 3% off the bill if I have the nerve to use a credit card. The guts of me, right?
Then there was the recent dinner I had where a “service charge” was shoved onto the bill, causing me to accidentally double the tip to my server, who was very good, but didn’t account for 40% of the bill. Yes, I should have paid more attention and yes, I should have said no to that fourth glass of wine but come on – doesn’t this seem a bit much – and a bit underhanded?
Related: ‘These fees are getting out of hand’: Diner claims she was charged 5% at restaurant to support health care for employees
Adding extra fees and charges is just bad pricing strategy. And yet small businesses across the country continue this practice and suffer backlash both online and in the media.
There is the recent story of the pizza restaurant Four Florida which upset customers by adding a 20% surcharge to “retain employees and offset inflation”. And the restaurants in it Memphis, richmond, Charleston And Cincinnatiwho played the same trick with the same consequences.
This is not limited to restaurants. Companies in other industries annoy their customers by forcing them to “guilt” employees with added screens on their point of sale systems. According to a report in Business Insider, landlords have taken to TikTok to advocate for tipping on top of rent, while Maryland’s first unionized Apple store campaigns to introduce a tipping system.
“It’s emotional blackmail,” complained one customer when forced to pay an additional service charge on an in-store purchase.
There are better ways to make your profit without making your customers angry. Try these three strategies to cover your costs without imposing additional costs and potentially angering your customers.
1. First, you need to spread your overheads across all of your products
Take credit card charges. According to the San Francisco Federal Reserve, consumers use cash about 20% of the time. So if you run a restaurant that brings in $500,000 in a year, it’s likely that $100,000 will be paid in cash and the rest ($400,000) will be paid by credit card. Your credit card fee — assuming 3% — would be $12,000 for the year or 2.4% of revenue.
So what to do? Your added overhead should be spread across your products. Using the simple example above, a 2.4 percent increase means that a $30 menu item now costs $30.72. For goodness sake, don’t make a big deal out of this by charging an extra fee. Just keep an eye on your overhead as a percentage of sales and quietly increase the price of your items. Will your customers slam the table, throw away their napkins, and throw a glass of wine in their waiter’s face because of this outrageous increase? Of course not. Why? Because they barely notice.
2. Then practice contraction inflation to protect your margins
Shrinkflation charges the same price, but delivers slightly less product. If you think that’s immoral, know that the biggest corporations – of Walmart to Reynolds Consumer Products Unpleasant Domino’s Pizza – do it. So why not you?
Maybe three meatballs instead of four in that pasta dish? Or how about sending 10 pieces in a box of parts instead of 12? Or offer fewer services with the product? Or pass on more freight costs? It’s all about protecting margins and your material costs are always the largest part of your margin. You need to analyze what you can scrape off your offerings before simply raising prices.
Related: A uniformed Apple store wants customers to start leaving tips for employees
3. Finally, encourage tipping, but don’t force it
In any case, you should update your POS system and website so that customers are strongly “encouraged” to leave a tip. Most will. I do. But you have to give a choice. Don’t just add arbitrary service charges to your bills. That only makes people annoyed and feel like they are being tricked.
Why are you doing this? Because the more your people earn, the happier they are at work, so the less turnover you suffer and you may even be able to attract more employees. And the less you have to pay your employees, the happier your accountant will be at the end of the year. Of course you have to pay a fair wage. But rising wages put pressure on your profits and will likely cause you to raise prices, meaning the customer will have to pay more. Gently urging the customer to tip more has much the same effect, without the money coming out of your bank account.
Posting signs that charge extra when a credit card is used or put a service charge on top of a bill draws unnecessary attention to your prices and can annoy your customers. You don’t want to do this. You want to keep your profits without drawing attention to how you are doing. By spreading your overhead across your products, applying shrink inflation, and strongly encouraging your customers to tip, you can achieve this without becoming a negative news item.